A perspective of the Indian aerospace industry
There was a time when if you were an aerospace engineer, you would either be a government employee or out of the country. It was a time when India was making its first steps towards developing aerospace capabilities. The road was rough, and with the sole public sector player in the market, the industry was not exactly the fertile playing field the world is today.
One of the principal challenges after half a century of aerospace research and development in India is this. The first Indian aerospace company is still the most dominant player in the market. However, this was not all bad news – with the focus on developing everything in-house, the aerospace engineers got a thorough grounding in the fundamentals. This, in turn, was the foundation for the vast talent pool that India would churn out in the decades to come.
The country opened its doors to the world with the economic reforms in 1991, also ushering in the disinvestment of public sector undertakings. This move triggered the auto boom that started with the spurring of research and development and significant improvements in productivity and quality. The automotive boom in India also brought a spurt in the aviation industry, also bringing in private players into an erstwhile PSU dominated landscape. To further the “all in-house” goal, the government directed on all air carriers to procure parts indigenously. This directive created an interesting scenario with private sector engineering firms beginning to venture into the aerospace markets. Beginning with MRO supplies, this engagement soon widened into aircraft development, to almost everything that could be called Rocket Science.
This transition from a quiet landscape to one bustling with activity was not without its challenges. Firstly, the tax regime seemed to favor imports, with fewer and uncomplicated levies on imported parts and equipment as compared with indigenously manufactured ones. As we have it, despite the challenges posed by the tax regime in India, with the Aviation Authority of India (AAI) charging royalties on MROs at 36.3%, Service Tax at and VAT imposed on development activities, the aerospace industry in India grew to what it is today. To underscore this, the industry has grown, in the constant headwind of global players’ hesitation to outsource to Indian service providers due to the high indirect taxes affecting costs.
Notwithstanding the new reduction of MRO royalties from 36.3% to 13%, Indian MROs find it unviable to remain competitive. In the backdrop of over US$100 billion in new military aircraft over the next ten years, and another 1000 civilian aircraft added to India’s fleet, the competitiveness of MROs is critical. Furthermore, this enhanced MRO capability can also place India as a regional hub for MRO as the only real alternative in Asia is China.
Stage-one separation – breaking out of high gravity
Having said this, the past decade in global aerospace industries has been cautious at best, due to the capital-intensive nature and the significantly longer turnaround times for implementations of decisions and visibility of results. From the 90’s to 2010, most of the headways of the private sector into aerospace has been in the machining sector. That, however, is fast changing, as the confidence in outsourcing design, development, testing and prototyping of aerospace components and equipment is increasing with each passing day.
Thus, aero engineering in India is a good story marred by challenges that are preventing an explosion in activity. Lack of raw materials and infrastructure is making it difficult for OEMs to commit to Indian vendors, in turn making a demand from large OEMs sluggish and circumspect. And then, we have some fine examples of companies that have shown remarkable patience and tenacity, realizing high volumes of supplies to OEMs. This is the future of aero engineering in India. For aero engineers, the future augurs well, on a rough but steady path towards regional superiority.
With the Government honoring its commitment to providing a simplified tax structure, the moneybags of aerospace investment are no longer firmly parked on the sidelines. As the wait and watch game ends, aerospace engineers will burnish their wares, apply the lessons learned over half a century of hard work. With investment pouring into the much-needed infrastructure, breaking through the machining glass ceiling is just a matter of time. Indian aero engineers are already boasting of ventures into new product development, testing, usability, prototyping and Product Lifecycle Management sectors. If we can maintain course, we will soon reach escape velocity on transforming India into the hub for air and outer space.
The last of the challenges for the Indian aero engineer is the industry itself. Given the slow and hesitant growth of the aerospace industry in India, specialization and cooperation have become the cornerstone of its success. With players collaborating and aiming for regional, rather than individual growth, the convergence of individual capabilities and facilities has boosted efficiency and has steadily fostered competition.
This healthy competition, combined with the fact that value addition is something OEMs take for granted with outsourcing to India, we can safely say that the Indian aerospace industry is a long bet.